. manufactures ONE PRODUCT. The company prepared a master budget for 2016 which included the following pro-forma income statement, which is based on an expected production and sales volume of 15,000 units.

Mississippi Corporation Budgeted Income Statement For the Year Ending December 31, 2019

Sales	$3,000,000
Cost of Goods Sold:
Direct Materials	$975,000
Direct Labor	$225,000
Machinery Repairs (Variable)	$60,000
Depreciation - Plant Equipment	$300,000
Utilities ($45,000 is variable)	$195,000
Plant Management Salaries	$200,000
Cost of Goods Sold	$1,955,000
Gross Profit	$1,045,000
Selling Expenses:
Packaging (Variable)	$75,000
Shipping (Variable)	$105,000
Sales Salaries (Fixed Annual Amount)	$250,000
	$430,000
General and Aministrative Expenses:
Advertising Expense (Fixed)	$125,000
Salaries (Fixed)	$241,000
Entertainment Expense	$90,000
	$456,000
Income From Operations	$159,000

The actual income statement for the year was as follows, based on 18,000 units were actually produced and sold:

Mississippi Corporation Budgeted Income Statement For the Year Ending December 31, 2019

Sales	$3,648,000
Cost of Goods Sold:
Direct Materials	$1,185,000
Direct Labor	$278,000
Machinery Repairs (Variable)	$63,000
Depreciation - Plant Equipment	$300,000
Utilities ($45,000 is variable)	$200,500
Plant Management Salaries	$210,000
Cost of Goods Sold	$2,236,500
Gross Profit	$1,411,500
Selling Expenses:
Packaging (Variable)	$87,500
Shipping (Variable)	$118,500
Sales Salaries (Fixed Annual Amount)	$268,000
	$474,000
General and Administrative Expenses:
Advertising Expense (Fixed)	$132,000
Salaries (Fixed)	$241,000
Entertainment Expense (Fixed)	$93,500
	$466,500
Income from Operations

1) Prepare a comprehensice and meaningful performance report for the year. Your report should show a) the static budget variance, b) the volume variance and c) the flexible budget variance.

2) Provide a summary of your findings regarding the Company's results for the period. Which of these variances are considered "controllable" and which are not?

3) Assuming that the company manufactures ONE PRODUCT, explain the companys SALES performance.

4) If, instead, the company manufactured MULTIPLE PRODUCTS, what might have accounted for the variances noted in #3 above?

NOW ASSUME that the following standards have been established for the produciton of one unit:

Direct materials 5 lbs @ $13 per lb. Direct Labor 1 hour @ $15 per hr.

The actual results shown above reflect actual materials usage of 118,500 pounds and actual labor of 22,240 hours.

5) What is meant by a standard, as used above? WHY are these important?

6) Further break down the Flexible Budget Variance (Standard Cost Variance) by computing and analyzing the direct materials price and usage (quantity) variances AND the direct labor rate and efficiency variances. Explain TWO possible causes for each.

7) NOW ASSUME that the company uses a standard costing system for recording product costs. The company recognizes direct materials variances at the time of usage. Journalize the following, assuming that the company uses normal costing AND standard costing:

a) Direct materials purchases, on account b) Direct materials payments to vendors c) Direct materials usage in production d) Direct materials variances e) Direct labor incurrence in production f) Payments to direct labor employees

8) Provide the journal entries required to dispose of the variances computed in #8(d) and #8(g) above, assuming that these amounts are considered immaterial.

9) NOW ASSUME that the variances computed above are considered material. Would this change the entry? How would this be handled? What additional information would be needed?